International edition
September 21, 2021

Although an earlier version of the lawsuit was dismissed 13 months ago

Zynga faces US lawsuit over IPO prospects

Zynga faces US lawsuit over IPO prospects
Zynga is to face a lawsuit in the US that accuses the social gaming company of defrauding shareholders about its prospects both before and after its initial public offering (IPO) in December 2011.
United States | 03/30/2015

Zynga is to face a lawsuit in the US that accuses the social gaming company of defrauding shareholders about its prospects both before and after its initial public offering (IPO) in December 2011.

A

lthough an earlier version of the lawsuit was dismissed 13 months ago, US District Judge Jeffrey White has now ruled that shareholders can pursue existing claims.

According to the Reuters news agency, the claims include allegations that Zynga concealed declining user activity, masked how changes of a Facebook platform for its games would impact demand, and inflated its revenue forecast in 2012.

Zynga’s market value slumped by several billion dollars between March 2012, when shares peaked at a price of $15.91 (€14.72), and July of the same year when shares were as low as $3 after the firm posted disappointing earnings and cut its outlook.

The previous lawsuit was based on evidence given by confidential witnesses, with Judge White stating that their testimonies supported claims that the Zynga management had intended to commit fraud.

“Plaintiff alleges that the officers at Zynga obsessively tracked bookings and game-operating metrics on an ongoing, real-time basis with regular updates on the activity and purchases by every user of every Zynga game,” White said.

“Confidential witnesses all corroborate that the updates on game users and spending data was readily accessible to Zynga's management.”

Judge White rejected a claim that Zynga had delayed product launches, staying that it was “business puffery” for the firm to brand its pipeline of games as “strong,” “robust” and “very healthy”.

The shareholder group, led by David Fee, also claimed that the social gaming firm concealed its weaknesses to allow insiders to sell $595 million of stock prior to when a post-IPO lockup was to expire, which in turn enabled them to avoid a 75% drop in its share price over the following four months. 

Zynga priced its IPO at $10 per share in December 2011, although its share price has been below $5 for more than a year now to due the failure to develop games to match the popularity of existing successful titles such as ‘Farmville’.

Zynga is yet to comment on the lawsuit.

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